TaxTMI 
TaxTMI 
TaxTMI 
1967 (8) TMI 11
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.... 5,000 shares. On the same day, the assessee and Sanjoy each made a gift of 5,000 shares in the private company to their mother, wife of Sudhir Kumar. Also on the same day, the assessee and Sanjoy each made a gift of 5,000 shares in the private company to the wife of the other brother and a further 5,000 shares in the same company to a married sister of theirs. Thus the wife of the assessee, the wife of his brother, Sanjoy, and the mother of the assessee and Sanjoy each came to possess 10,000 shares in the private limited company. We are not concerned, in this reference, with the transfer of shares made to the sister of the assessee and of Sanjoy. The transfer of shares were all registered, in the names of the transferees, in the share register of the private company. In the return filed for the assessment year 1960-61, the assessee excluded the dividend income derived from the 10,000 shares which he had transferred to his mother and brother's wife, namely, 5,000 shares to his mother and 5,000 shares to his brother's wife. The Income-tax Officer, however, included the dividend income in the hands of the assessee with the following observations : " It was found that the assessee, ....
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.... 1,00,000. It is verified that the Gift-tax Officer has not allowed this relief in the gift-tax assessment. All these facts go to show that the stand taken by the Income-tax Officer in the present assessment cannot be sustained. There is no material whatsoever to hold that the assessee indirectly transferred his own shares to his wife. In this connection an additional factor to be noted is that the distinctive number of the shares gifted by the assessee to his mother and other ladies is different from the distinctive numbers of shares received by the assessee's wife. It is well-settled that in the case of shares the rights are attached to the particular shares. In this case the shares belonging to the assessee were not as such transferred to the assessee's wife. Therefore, in this particular case it cannot be held that the assets have been transferred to the wife. " The revenue, thereupon, appealed before the Appellate Tribunal, which dismissed the appeal with the observation : " The only contention raised in this departmental appeal is that the Appellate Assistant Commissioner is wrong in excluding from the total income of the assessee the dividend on 10,000 shares of Sen and Pa....
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....tion in favour of the assessee and against the revenue. He submitted that the decision of the Madras High Court in C. M. Kothari's case stood reversed by the Supreme Court in Commissioner of Income-tax v. C.M. Kothari and, consequently, the reasons which weighed with the Madras High Court should not be taken as good reasons any longer. The Tribunal, therefore, should be deemed to have erred in relying upon the Madras High Court decision in finding in favour of assessee. In order to appreciate this argument, it is necessary for us to see what happened in C. M. Kothari's case, in some detail. In that case, there was a firm of stock-brokers known as Messrs. Kothari & Sons. In 1947, the firm consisted of C. M. Kothari and his two sons, D.C. Kothari and H.C. Kothari. On October 7, 1957, the firm entered into an agreement for the purchase of a house for Rs. 90,000 and the same day paid an advance of Rs. 5,000. This sum was debited in the books of the firm to the accounts of the three partners as follows : Rs. C. M. Kothari 1,800 D. C. Kothari 1,600 H. C. Kothari 1,600 ------------- Total 5,000 ------------- The transaction was completed on October 24, 1947. The sale deed, howeve....
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....place earlier in the year and there was no occasion to give a birthday present to her several months later and on the date coinciding with the purchase of this property. The Income-tax Officer also found that in the past, the father-in-law had never given such a big present to his daughter-in-law on Diwali, and this time there was no special circumstance to justify it. The assessee appealed before the Appellate Assistant Commissioner but failed. The appeal before the Appellate Tribunal also fared the same fate. The Tribunal did not, however, hold that the transaction was benami but confirmed the other finding that the two ladies had acquired their shares in the house out of the assets of the husbands indirectly transferred to them. At the instance of the assessee, the Tribunal stated a case for opinion of the High Court but the High Court answered the question in the negative. When the matter reached the Supreme Court, the question whether the two transactions were benami transactions did not fall to be considered. The only question which survived for decision of the Supreme Court was whether the case was covered by section 16(3)(a)(iii) of the Income-tax Act. The Supreme Court con....
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....nce was tendered why there was a sudden change. It is difficult to see why the ladies were named as the vendees if they did not have sufficient funds of their own. They could only buy the property if some one gave them the money. It is reasonable to infer from the facts that before the respective husbands paid the amounts, they looked up the law and found that the income of the property would still be regarded as their own income if they transferred any assets to their wives. They hit upon the expedient that the son should transfer the assets to his mother, and the father-in-law, to the daughter-in-law, obviously failing to appreciate that the word ' indirectly ' is meant to cover such tricks. " Mr. Mukherjee contended that in the instant case, the motive of the father-in-law transferring his shares to his two daughters-in-law, the motive of the sons transferring an equal number of shares to the mother and the motive of the two brothers transferring shares owned by them to the wife of the other brother were such as would raise the only inference that this was done with a purpose the purpose being to circumvent the provisions of section 16(3) of the Indian Income-tax Act. According....
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....erred otherwise than for adequate consideration to a person by an individual for the benefit of his wife. Mr. Sukumar Mitra, learned counsel for the assessee, tried to repel the contentions raised by Mr. Mukherjee with the following arguments. He submitted, in the first place, that the Income-tax Officer came to an a priori finding that the transaction amounted to a collateral or associated operation. He further submitted that there was no evidence which would go to establish that the transfer by the father-in-law to the daughters-in-law, the transfer by the sons to the mother or the transfer of the brothers to the other brother's wife was made under an understanding or an arrangement whereby a purpose was sought to be achieved. In the absence of such evidence, he submitted, the circumstances relied on by the revenue would not go to establish the proposition that the transfers were made indirectly to wives with the object of avoiding the mischief of section 16(3). He also submitted that in a chain transaction it may be necessary to show that the same property by circuitous method reached the wife, but in the instant case, there was no chain transaction and it was, therefore, neces....
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....-law so as to deprive the wife and the sons out of filial piety, compensated the mother by making a gift of equal number of shares to the mother so as to neutralise the injustice perpetrated by their own father upon their own mother, the two transactions might be taken as different transactions. Here there is no such evidence. What was done, in the instant case, can be explicable either on the theory that it was a thoughtless transaction throughout, or that it was done with the purpose of avoiding the effect of section 16(3). This is further reinforced by the fact that not only did the father-in-law make the transfer of shares in favour of the daughters-in-law and the sons made transfer of shares of equal number in favour of the mother but the two brothers transferred equal number of shares to the other brother's wife, thus arriving at the same position which could be achieved if each of the brothers transferred the shares to their own wives. Man is a thinking creature. Ideas move him. Thought provokes his action. It is not, therefore, possible, without more to arrive at the conclusion that what was done, in the instant case, was thoughtlessly done. If thoughtlessness be out of the....